EPA Promulgates Framework for Regulation of Greenhouse Gas Emissions

On April 2, 2010, the U.S. Environmental Protection Agency ("EPA") published interpretive guidance in the Federal Register partially clarifying how greenhouse gas ("GHG") emissions will be regulated in Prevention of Significant Deterioration ("PSD") and Title V permits. See 75 Fed. Reg. 17,003 (Apr. 2, 2010). Under the March 29 guidance, PSD and Title V permits issued before January 2, 2011 will not need to address GHG emissions, while permits issued after that date will need to do so, even if the permit application was deemed complete before that date. Other questions, such as how to address BACT for GHG emissions and how GHG emissions requirements will be incorporated into Title V permits were deferred until EPA finalizes the GHG PSD Tailoring Rule sometime later this year.

Reconsideration of the Johnson Memorandum

In the fall of 2009, EPA agreed to reconsider an earlier guidance memorandum that had been issued on
December 18, 2008 by then-Administrator Steven Johnson (the "Johnson Memorandum"). The Johnson Memorandum addressed the scope of pollutants that must be addressed by the existing Title V and PSD permitting regime in light of the Supreme Court's decision in Massachusetts v. E.P.A., 549 U.S. 497 (2007) that GHG emissions are "air pollutants" under the Clean Air Act. The Johnson Memorandum determined that GHG emissions are not "regulated NSR pollutants" under the Clean Air Act until they are subject to an emission limit.

The Johnson Memorandum specifically considered the question of whether recordkeeping requirements alone subject
a pollutant to PSD, such as the existing recordkeeping requirements for carbon dioxide ("CO2") and whether future limitations on GHG emissions would make GHG emissions subject to PSD. The PSD requirements regulate emissions of "regulated NSR pollutants" from "major sources." The Johnson Memorandum concluded that pollutants subject only to monitoring and reporting requirements are not "regulated NSR pollutants" subject to PSD. The Johnson Memorandum further concluded that GHGs would become "regulated NSR pollutants" once EPA issued regulations that required actual control of GHG emissions. After receiving petitions from environmental groups, EPA agreed to reconsider the policy set forth in the Johnson Memorandum, leading to the March 29th interpretive guidance.

A related proposed rulemaking, known as the "Tailoring Rule," would address the manner in which GHG emissions would be incorporated into the existing Title V and PSD permitting regime. See 74 Fed. Reg. 55,291 (Oct. 27, 2009). EPA has not released a final version of the Tailoring Rule yet, but, as explained below, the agency has announced the results of its reconsideration of the Johnson Memorandum, and the Agency has committed to having the requirements of the Tailoring Rule in place by January 2, 2011.[1]

Results of the Reconsideration

Interpretation of GHGs will become Regulated Pollutants Subject to PSD

Much of the March 29th announcement on reconsideration addresses EPA's interpretation of when a pollutant, like GHGs, becomes "regulated" for PSD and Title purposes. EPA's final determination differs slightly on this point from the original proposal in the Johnson Memorandum. The Johnson Memorandum proposed that a pollutant became a "regulated NSR pollutant" when a regulation "that requires actual control of emissions" was promulgated regardless of when, or whether, that rule became effective. After reconsideration, EPA determined that a pollutant actually becomes a "regulated NSR pollutant" at a later date - when the emission controls required by the regulation actually takes effect. This is significant because, under the Clean Air Act, "regulated NSR pollutants" are subject to the emission control requirements of the PSD program, and Title V permits must also include any applicable requirements relating to that pollutant.

With respect to GHGs specifically, EPA determined that the PSD requirements will apply no earlier than the date that
the anticipated tailpipe standards for light-duty vehicles (the "LDV rule") take effect. Under EPA's LDV Rule, which
has yet to be issued, the earliest possible date that auto manufacturers would be required to comply with that rule is January 2, 2011. As a result, under EPA's interpretation of a "regulated NSR pollutant," that date is also the date that
new permits will have to incorporate PSD requirements for GHGs. Which sources will be subject to PSD and Title V permitting on January 2, 2011 will be clarified in the Tailoring Rule.

No Grandfathering of Completed Permit Applications

It is particularly important news for companies with permits pending during the course of the next year that EPA has determined that it will not grandfather pending permit applications. As a result, if PSD permit for a source classified as
a major source under the Tailoring Rule is issued after January 2, 2011, the permit will have to address GHG emissions under EPA's current approach. There is not currently an exception to this requirement, even if the permit application was filed or deemed complete prior to that date. Likewise, after that date, sources that are not currently subject to Title V due to their emissions could become so after that date.

No Guidance on BACT for GHG Emissions

EPA notes in the rulemaking that Best Available Control Technology ("BACT") determinations will be a significant hurdle
to incorporating a new pollutant into the existing permitting regime, and that imposing Title V and PSD requirements
on sources that would be "major sources" under the Clean Air Act only as a result of GHG emissions is potentially unworkable. However, the agency provided no guidance to sources on what BACT for GHGs would be, and instead has deferred providing any guidance on the issue until the final Tailoring Rule is issued. EPA suggested that rule will provide further guidance on how sources may become subject to PSD and Title V requirements due to their emissions of GHGs. That said, EPA also stated that permitting authorities currently have discretion under the BACT provisions to promote technologies that facilitate GHG emission reductions, and that they should use that discretion to consider GHG impacts in the context of pending PSD applications prior to January 2, 2011. The basis for this authority appears to be the ability for permitting authorities to consider energy impacts as part of a BACT analysis. EPA states that this comprehensive BACT review "clearly requires consideration of energy efficiency." Neither the Clean Air Act or the PSD regulations, however, provide how energy efficiency is to be addressed in BACT determinations. EPA intends to issue guidance on this point in the near future.

Regulation of GHG Emissions Under the Title V Program

EPA also discussed how it plans to control GHG emissions through the Title V program. The Johnson Memorandum and the reconsideration notice only addressed PSD permitting issues. However, EPA received many comments urging the agency to adopt the same approach for Title V as it does for PSD permitting. EPA determined that it will continue its long-standing interpretation that provisions governing Title V applicability for a "major stationary source" are only triggered by emissions of pollutants that are subject to regulation. Historically, although there are some differences in the program purposes, the PSD and Title V programs have followed the same approach for determining when a pollutant is "subject
to regulation." Consistent with this approach, EPA stated that it is "generally inclined" to continue that practice for GHG pollutants. As a result, for purposes of determining whether sources are major under Title V, GHGs are "subject to regulation" no sooner than the date on which an emission control requirement for GHGs takes effect. The specific manner in which GHG emissions will be incorporated into the Title V program will be addressed in the final Tailoring Rule.

Clarity regarding when PSD and Title V will regulate GHG emissions

By revising the Johnson Memorandum approach slightly to clarify that PSD and Title V permitting will not address GHG emissions until the beginning of 2011, the March 29th guidance provides sources with a drop-dead date as to when projects undergoing permitting will have to address these emissions as well as providing guidance to sources as to when Title V renewals will begin taking these issues into account. This deadline will be an important date for planning purposes for determining whether to implement projects, to take a synthetic minor cap to avoid PSD review, and when operating permit programs will need to consider GHG emissions for purposes of determining Title V applicability.